Provided a keynote on “Impact Investing” in November 2014 (Glenville, SC) at the South Carolina Community Capital Conference, which was co-hosted by the Federal Reserve Bank of Richmond, here's a re-cap of the event from the local business journal;
As impact investing has grown, it has begun to reshape traditional approaches to financing socially focused initiatives – sometimes to the point where paradigms start to shift. Take bonds for instance. Traditionally, investors have used them to loan money to a business or government to finance various projects or activities for a set period of time and guaranteed rate of return. If you’ll indulge an ‘80s reference, they are like Brian Johnson – Anthony Michael Hall’s character in “The Breakfast Club” – safe and reliable.
But due to the influence of impact investing, bonds have begun developing a bit of an edge. To continue The Breakfast Club analogy, they are becoming more like Judd Nelson’s John Bender: rebellious and riling up the space of social change. For instance, the $416 million Unilever bond mentioned in the previous post is not only increasing the efficiency of new and retrofitted factories - it is actually spurring investors to finance triple-A rated sustainable growth. And “social impact bonds” are catalyzing developments in the public sector by letting investors and philanthropists assume the upfront risk for social programs, while government only pays back the investors for the programs that actually work.
These bonds, which offer a fixed period of time but not a fixed rate of return, have caught the imagination of government, philanthropy, and investors and over $100 million has thus far been mobilized globally in this way. But if you’re scratching your head and reasoning, “well that doesn’t sound like a bond,” you would be correct. (John Bender was an enigma too).
In many ways, impact investing is on a winning streak. Consider a few recent milestones that illustrate the sector’s growing momentum:
- In March, Unilever announced a $416 million bond, the proceeds of which will be invested into projects like new and retrofitted factories that will result in reductions of 50 percent in CO2 emissions from energy, water used, and waste generation.
- In early September, LeapFrog Investments, a private equity firm backed by George Soros and J.P. Morgan, announced it had raised $400 million for impact investments in Asia and Africa.
- That same week, nearly a dozen wealthy families announced that they have committed to invest a combined $300 million over five years in commercial ventures in the areas of climate, energy, health, food and sustainability.
The FA & Private Wealth Impact Investing Conference explored why impact investing is attracting attention, assets, and opening up a huge channel of new business for the financial services industry. Leaders from the impact investing industry shared their success stories and explained how seeking alpha doesn’t necessarily have to come at the expense of social and environmental impact.
At the Boston 2014 edition Burckart provided a speech and moderated a panel on “Passing the Torch on Impact Investing” and was joined by Hilary Irby, Managing Director, Morgan Stanley’s Global Sustainable Finance group; Kirstin Hill, Managing Director, Markets Group, Merrill Lynch; and Caesar Layton, Founder, Cultivate Ventures.
In their 2011 book Impact Investing: Transforming How We Make Money While Making a Difference, Antony Bugg-Levine and Jed Emerson—in many respects, two of the legends in the impact investing field—recognize that the challenge of the field “is to bring the [impact investing] perspective from the fringe to the mainstream.”
And while they express the hope that “some of the early visionaries [will] remain powerful voices,” they also recognize that this shift will require new voices: “communicators who act as mainstreaming messengers ... conduits that can absorb the lessons from visionary practice and communicate them effectively to much wider audiences.”
Interviewed by NextBillion Financial Innovation in August 2014 and discussed several challenges and innovations in the impact investing sector, and assessed the effects of U.S. government regulations on growth;
"I think that impact investing, more than anything, has really achieved this idea of being a concept that folks are excited about, and want to engage in," says Bill Burckart, managing director of Impact Economy North America. "It's not as much of a challenge anymore to really educate people on it, to get them excited about it. I think that what I haven't yet quite seen is that there are ... market gaps that still need to be filled - whether in terms of knowledge, products or activity."
The limited number of opportunities for “impact investing”—investments intended to generate measurable social and environmental impact alongside financial returns—is restricting the growth of this style of investing, according to a global survey of practitioners undertaken by Impact Economy for the U.K. Cabinet Office.
Limited deal flow will likely be even more of a problem in the future due to the looming generational wealth transfer between Baby Boomers and their beneficiaries—the total value of which has been estimated to be upwards of $41 trillion—as the recipients of this transfer consistently rank social and environmental returns as their primary investment criteria, ahead of profit. Put another way, there is significant opportunity and an equally significant gap in the impact investing field and in the future of wealth management.
It’s encouraging to see that a growing number of financial institutions are beginning to embrace impact investing. But investors, funds and advisors are nonetheless struggling with different elements of impact investing strategies—including the sourcing of investments and building fund portfolios, as well as obtaining adequate financial and impact related data.
That’s why Impact Economy, in collaboration with the Money Management Institute, produced the new special report Serving Client Demand for Impact Investing: A How-to Guide for Financial Advisors and Senior Management. The report explores how the major financial advisors and institutions that are moving toward impact investing could go further and actually align these investments, making impact both commercially viable and socially transformative.
The news releases arrived in noteworthy succession throughout 2013. Morgan Stanley, UBS AG, The Goldman Sachs Group Inc., and JPMorgan Chase & Co. — some of the biggest names in the financial services industry — announced plans to establish or augment their activities around impact investing. Such investments are made with the intention of generating measurable social and environmental impact alongside appropriate financial returns.
A new report explains how the financial services industry can better harness impact investing to serve client demand.
Participated on a panel at the Impact Economy Symposium & Retreat in June 2014 (Switzerland), where Bill was joined by Andres Ernst, the head of Impact Investing for UBS; Kieron Boyle, the Head of Social Investment and Finance for the United Kingdom Cabinet Office; and Dorje Mundle, the Head of Corporate Responsibility Management for Novartis;
Our panel of industry experts will review key findings from a new special report produced by Impact Economy in conjunction with MMI that examines the motivations, dimensions, issues, and opportunities that investors and firms encounter when creating impact investment programs. Based in part on results from a recent survey of MMI member firms and a series of in-depth interviews with key senior executives, the report seeks to go behind the headlines and hype the sector has recently been generating to illuminate why financial institutions continue to struggle with the different elements of impact investing and lay out a possible path forward.
This special report arose over the course of a multi-year discussion between MMI and Impact Economy—the global impact investing and strategy firm—about the emergence of impact investing and the peculiar challenges and opportunities it represents for financial institutions and investors.
This exchange began in October 2012 with an exhibition of Impact Economy’s impact investing services for attendees at MMI’s Fall Solutions Conference in New York, and was continued with the launch of an Impact Investing Blog on MMI’s website in July 2013. The resulting report also benefited from Impact Economy’s extensive and pioneering impact investing work and industry expertise, reviews of client mandates, data analysis and desk research, and targeted interviews with leading financial institutions that were initiated in November 2013.
The findings were further augmented with baseline data and insights that were generated from a survey that MMI distributed to over 400 senior financial services executives in March 2014.
Provided a keynote (below) on "Social Impact Investing for Community Development" in April 2014 (Dallas, TX) at the Investing in What Works: Dallas, an event co-hosted by the Federal Reserve Banks of Dallas and San Francisco;
Investing in What Works: Dallas was held at the Federal Reserve Bank of Dallas on April 21, 2014. The forum gathered a diverse audience of representatives from nonprofits, foundations, financial institutions, government agencies and for-profit organizations invested in low- and moderate-income communities. Presenters highlighted effective and innovative practices from the community development field, with a focus on the growing sector of social impact investing. An audience favorite was a series of TED Talk-style "spotlights" featuring programs and models that are succeeding in Texas.
Moderated a panel at the MMI Annual Conference in April 2014 (New York, NY) during which Bill was joined by Mark D. Sloss, the Senior Portfolio Manager and Head of Premier Portfolio Services for UBS Wealth Management Americas; Amy Bell, the Executive Director and Head of Principal Investments for JPMorgan's Social Finance unit; and Joel Hornstein, the Managing Director of DreamFund;
The Illinois Task Force on Social Innovation, Entrepreneurship, and Enterprise was established by the Executive Order of Governor Pat Quinn on November 2, 2011.1 The purpose of the Task Force is to provide recommendations on how Illinois can better foster an environment to: create, scale, and sustain innovative social programs; build the capacity of nonprofit organizations and government to pursue entrepreneurial ventures; and attract funding to Illinois to support these ventures. Central to the Task Force’s mandate is to provide a series of reports to the Governor and General Assembly, with recommendations on how to position Illinois to achieve the aforementioned purpose.
On Wednesday, August 28, 2013 the Task Force heard testimony from Mr. William Burckart who offered his actionable policy recommendations to help Illinois support the impact investment industry by stimulating supply, directing capital and regulating demand. A report on the progress of the Task Force (including Burckart's testimony) is available here.
The level of discussion among government, investors, philanthropists, and nonprofits around the topic of impact investment has recently hit a new high watermark. Is a silver bullet for addressing skyrocketing deficits, uncertain financial markets, and staggering need just around the corner? No—but impact investing is a potentially very powerful use of finance that can help fast track the transformation of the market economy into a sustainable economy.
In a time of skyrocketing deficits, uncertain financial markets, and staggering need, many government, business, and nonprofit leaders are eagerly looking for help from impact investments—deals that achieve a measurable social and environmental impact alongside a financial return.
But impact investment is not well understood outside of a relatively small group of early adopters, and even this band of innovators harbors multiple, sometimes-incompatible interpretations of the concept.
The result of this fragmentation is that government is struggling to build an environment that encourages impact investing while investors and foundations try to figure out what kinds of returns are reasonable to expect. In the meantime, hype is outpacing reality, and all the excitement could fizzle into very little unless we get serious about figuring out ways to move forward.